Tuesday 16 February 2010 05.48 EST
First published on Tuesday 16 February 2010 05.48 EST

Vodafone boss Vittorio Colao sounded a warning to the mobile phone industry today over the dominance of Google in the search and advertising markets.

In his keynote speech at the Mobile World Congress in Barcelona, Colao said the dominance of search engines in the online advertising space "from a public policy perspective is something that should be looked at".

He urged the European commission to make sure the ideal of openness on the internet did not stop network operators recouping some of their investment in superfast services from someone other than the consumer.

Network companies should be allowed to do deals – or as he put it, "freely deal" – with content companies that want to ensure a certain quality of service for users.

A film company, for instance, might want to ensure the HD trailer for its film is easily and smoothly downloaded or streamed, by paying a network provider to guarantee a certain level of service.

"The ability to, at the end of the day, fund our investments with customers' money is fine but we should be able also to have other deals and if content owners want to [achieve] distribution for their own content, [through] commercial deals, why not?"

He denied he was calling for regulatory intervention, but his comments to an audience of industry executives echoed a warning by his predecessor Arun Sarin three years ago that companies such as Google could "eat the mobile industry's lunch" if they were not careful.

But where Sarin hoped the industry would come up with viable services to compete with the online leaders, Colao said he wants regulators on both sides of the Atlantic to ensure full competition.

He said that would allow network companies to start looking at such new ways of making money. One potential source of revenue for Vodafone, Colao admitted, could be Google itself.

"The Google thing, the point there is a tricky point because it is not a technology point, the solution is to be able to freely deal up and down the value chain," he said after his speech. "So network operators, content owners, application owners should be able to freely deal and we should try and have competition in all segments.

"The fact that 80% of advertising online goes through one funnel, there's nothing wrong [with that]: to be clear, we use Google, we like Google … it is more of a structural point. You cannot develop a healthy data environment if you do not have competition at all levels. It is more of a point about the future debate about net neutrality than anything specific."

Net neutrality

Net neutrality, the idea that all web traffic is treated equally so everyone should have access to everything, is hotly debated on both sides of the Atlantic.

The stakes have become very high for some of the biggest names on the internet. If they had to start paying even a small amount for the capacity they are using, companies such as Google, with its YouTube service, and the proliferation of online film and television sites, would be facing large bills.

In the UK some internet service providers have suggested the BBC should help meet some of the costs of the huge amounts of traffic generated by its iPlayer. In Europe the topic is likely to feature highly as the new telecoms commissioner, Neelie Kroes, formerly EU head of competition, takes over from Viviane Reding.

Colao said he has been concerned about recent moves in the US where the Federal Communications Commission last October proposed preventing American fixed-line network companies from blocking content unless it was harmful to their networks. "Some of the FCC interpretations that I read seem to indicate rules on how to manage the thing and I do not think we should have those rules, I think we should have a free system," he said.

Google has been lobbying hard for net neutrality and in a move widely seen as part of the fight it recently began to test its own high-speed internet lines in the US. That move came ahead of the FCC's unveiling of a new national broadband strategy, which is due next month.

"It is important that the new [European] commission in Europe, and to some extent the Federal Communications Commission in the US, take a holistic view of the whole value chain and ensure that the rules they put in place, whatever they are, are rules that really enable competition at all levels," Colao said.

Competition at every stage

In Europe, however, the debate is also clouded by the fact that some fixed-line operators have been given what is essentially a regulatory holiday while they build new broadband networks.

"In Europe the debate is more focused on next-generation access networks, in the US it is more focused on net neutrality, but both are very important for everyone. If you want my prediction I would spend a bit of time over the next few years talking at all levels. These are two important topics I think," said Colao.

"I remember in the early 1990s the whole discussion was about competition, competition, competition and everything has been designed to be competitive and this has worked pretty well.

"I think in the new data environment we should ask ourselves what will enable competition in each stage of the value chain."

He admitted it may not be possible to charge for network access, but said: "You should leave it to free negotiation. I used to work in the media business and if I wanted to get the newspaper in the kiosks in Sicily at 5am I had to pay more than if I wanted to be in the kiosks at 7am with all the other newspapers."

Asked whether he would hope, one day, that Google might strike a deal, he said: "If they wish so, I would welcome it. I would not say no to Google's money."

But he stressed that if he did a deal with one content owner, any other content owner would be able to get exactly the same deal at the same price. "Non-discriminatory conditions are very important."

Vodafone is already testing technology in Spain that allows business customers to have a certain level of guaranteed service, while across the world it controls the flow of web traffic on its network at peak times.

Asked whether his plans would ultimately lead to a two-tier system for consumers, with those who can pay getting a better service, he said: "I think it should be a 15-tier system, a 20-tier system, it's called segmentation, it's the basis of every business."

Portable apps

Colao also called for greater openness in the booming market for mobile phone applications, saying that people should be able to freely transfer their apps between devices, regardless of the operating system.

"If today I buy a book in London I can freely bring it to another country and do anything I want with it," he said. "Portability of personal data is going to be a very important point."